Wednesday, December 22, 2004
Yoram Margalioth (Tel Aviv University), Eyal Sulganik (Interdisciplinary Center Herzliyah, Arison School of Business), Rafael Eldor (Interdisciplinary Center Herzliyah, Arison School of Business) & Yoseph Edrey (University of Haifa) have posted Tax Planning, Imbalance and Production on SSRN. Here is the abstract:
The paper analyzes the case of tax planning that tilts the government gain/loss ratio below one, and provides a proof of a certain type of inefficiency caused by tax planning. As the paper shows, the tax imbalance distorts the firm's output level, providing the firm with an incentive to produce more than the social optimum. This inefficiency is different from the general inefficiency entailed by income taxation, captured by the conventional notion of excess burden. The paper also examines the determinants of this type of distortion and offers some policy implications.